Chancellor George Osborne Budget 2014 reform of pensions could signal a U-turn in thinking over Qualifying Recognised Overseas Pension Schemes (QROPS).
The New Zealand QROPS industry faced a savage night of the long knives in April 2012, when 41 pensions were suspended from the official HM Revenue & Customs (HMRC) QROPS list.
The problem was New Zealand QROPS allowed retirees to take a tax-free lump sum from their pension pot and the rest in cash subject to paying income tax.
Specific regulations were published putting certain New Zealand pension schemes outside of the QROPS regulatory remit.
Now, the wheel has turned full circle as Chancellor George Osborne – who was also in the office at the time of the QROPS shake-up – has decided that anyone over 55 can do exactly what New Zealand QROPS were stopped from doing two years ago.
Unfair advantage
It would seem unfair for Osborne not to let small pot QROPS investors have the same financial advantages as their onshore counterparts under his pension reforms.
After all, HMRC has suspended and QROPS providers and financial centres on the grounds that they often unfair advantages that were not available to British onshore retirement savers, so surely the arguments should work in reverse for expats.
QROPS providers can quite rightly argue with HMRC and The Treasury for equal treatment.
The new regulations let a British expat or international worker with a small-pot onshore defined contribution pensions draw 25% of their pension as a tax-free lump sum and the rest at their marginal rate of tax.
Other rules apply, but the other interesting point for QROPS providers is the proposed consultation scrapping the 55% tax charge on unspent pension funds.
Devil in the detail
Many QROPS investors switch offshore to avoid this inheritance tax issue.
Certainly, Osborne’s pension plans need defining for QROPS investors and providers, and the devil in the detail may well be published with the Finance Bill 2014.
The new rules are unlikely to affect large-pot pensions, because the financial thinking behind moving offshore is more strategic than that behind moving a small-pot fund.
However, QROPS investors will still benefit from not having to manage foreign exchange rate fluctuations to make the most of their money.
All QROPS pay benefits direct into the member’s bank account in one of a range of major currencies, including sterling, the euro and US dollars.
Onshore UK SIPP’s beat Qrops hands down now. Chancellor just put an axe to Qrops. Common sense prevails and you are now much freer onshore- so best do the hokey cocky and send your money back to the UK. Its a scandal how many wide boys have been wrapping pension funds in offshore bonds and taking clients to the cleaners.
As the article indicates the devil will be in the detail. However as things stand it seems that those with small amounts will probably do better to remain “onshore”. However for those with larger amounts there may still be attractions to move “offshore”; attractions could include currency switch, a larger 30% lump sum and perhaps a lower local marginal rate of tax. We will see.